Making the Most of Your Philanthropic Efforts with Planned Giving
If you’ve been supporting different causes as a donor for quite some time, you might already be familiar with the idea of planned giving or “legacy giving”. This is often considered one of the most effective ways of making a difference in a non-profit organization’s mission.
This method of donating often makes up the biggest chunk of donations given to a charity. Sitting at the very top of the donor pyramid it is often overlooked by charitable organizations due to its relative infrequency.
But as much as these planned gifts can be considered surprises, they’re still a crucial part of what makes charitable organizations work. They are also one of the best ways for philanthropic individuals to support the causes they care about the most, leaving a powerful legacy behind even after they’re long gone.
So, how does this incredible charitable gift work and how can you know if it can work for you?
Here’s all you need to know about planned giving and the legalities of this donation method. It also covers what you need to keep in mind if you’re planning to leave a charitable remainder to Food for Life’s international food relief mission.
What is Planned Giving?
In short, planned giving refers to the process of making a considerable donation to a charitable organization as part of your estate or financial plan, either in life or after your death.
Legacy giving allows donors to make bigger donations that they’d be able to make regularly. This helps them make an even bigger difference to the charities they want to support.
Some planned giving donors might be life-long supporters of a given organization, while others might make a considerable donation as part of their will. This donation method is often referred to as a “charitable gift”, with the gift most commonly being real estate, equity, stocks, life insurance, cash, or other valuable personal property.
Note that a considerable donation made from one’s yearly personal cash flow is not considered planned giving. This is because this donation method requires the donor to work alongside a financial planner or other professionals well-versed in national tax law.
Planned giving is often part of an Estate Plan. It requires certain careful considerations in terms of investments and tax strategies to maximize the donation’s impact and someone to help distribute the funds after the donor’s death.
But leaving a charitable bequest in your Estate Plan is not the only way you can make valuable gifts to your chosen charity. Let’s explain all the different types of planned giving available out there, so you can find the perfect one for your needs!
What are the types of Planned Giving available?
Generally speaking, planned giving options fall into three broad categories: deferred gifts, gifts that pay an income, and gifts that protect a donor’s assets.
These gifts come in all shapes and sizes, from gifted stocks to full-on trusts, each fitting different types of donor profiles.
Here’s a handy breakdown of the options available and what donor needs they might fit best:
Deferred gifts are charitable gifts distributed to a chosen organization once the donor has passed away. They are arguably the easiest gifts to give since they only require the donor to name their non-profit of choice in their Estate Plan as the beneficiary of their retirement account.
The aforementioned charitable bequest is one of the most common types of deferred planned giving, making for one of the simplest yet most impactful donation options available to donors and charities.
Bequests made up approximately 9% of all U.S. charitable donations in 2018, and they remain a popular donation method among donors of all backgrounds. Aside from gifting a set amount of cash, donors can decide to set a percentage or a whole amount of an estate to give to a charity. They might also add the request to an existing will by executing a codicil.
Another type of deferred gift is life insurance or retirement plan gifting. This consists of donors naming their charity of choice as the beneficiary of their life insurance policies or unused retirement assets, including 401(k)s, IRAs, and pensions.
Gifts that pay an income
Another type of planned giving consists of gifts that pay the donor an investment income after they have donated a considerable sum to the chosen organization.
These types of gifts require a long, committed relationship between donor and charity, and they’re best suited to donors who want to generate a retirement income while still making a valuable impact on an organization’s work.
You will usually find four different types of income donations: charitable gift annuities, pooled income funds, charitable remainder annuity trusts, and finally remainder antitrusts.
Let’s start with gift annuities, one of the most popular contracts made between a donor and a charity.
According to this agreement, donors will give an irrevocable gift (meaning a gift that cannot be exchanged for something else) to their charity of choice in return for a fixed income payment. The payment will either be fixed for an agreed-upon term or for life, depending on what is set out in the initial contract. This gift option is considered to be very beneficial for both parties, since the donor can take an immediate tax deduction and the organization can grow the funds through investing and exercising complete control.
Charitable remainder annuity trusts, on the other hand, require donors to contribute financially to the established trust while receiving a fixed income from the charity. This is based on the percentage of assets used. This way, donors can avoid paying capital gains or taxes as the charity invests the funds. At the end of the agreed term, the entirety of the remaining balance is given to the charitable organization.
Antitrusts are a slightly more flexible method of donating while receiving an income. They still require donors to pay a fixed percentage of the fair market value of the assets, but with an annual revaluation of the asset’s value that leads payments to either increase or decrease.
Finally, pooled income funds are another form of a charitable trust set up by charities to group together different donations for investing. The organization then pays their donors an income based on the investment’s performance and their share of the funds, receiving the donation only after the donor has passed away.
Gifts that retain and protect assets
Finally, we get to the types of planned giving gifts that protect the donor’s assets instead of giving them away entirely.
These donation methods include charitable lead trusts and retained life estates. They are best suited to donors wishing to continue transferring wealth to their heirs and loved ones while still making a considerable impact on the mission of their supported charities.
When donating to a charitable lead trust, donors can give their charity of choice a fixed income stream. This ensures their assets will go back to the donor or other beneficiaries at the end of the fixed term, reducing estate taxes at the same time.
Retained life estates, on the other hand, allow donors to transfer a property title or deed to their chosen organization. In turn they receive an income tax deduction and use of the property. The nonprofit will be considered the owner of the property until the term is up, and either sell or keep the property after that.
Why is Planned Giving Important?
Planned giving is an incredibly impactful donation method, with plenty of benefits for both donors and charitable organizations.
These planned donations help support worthy causes in a way that most donors wouldn’t be able to otherwise, addressing their specific financial needs and tax strategies at the same time.
By the same token, nonprofits are able to access a more diversified portfolio of funds and receive more considerable donations. These can be either in the form of a fixed income or a one-time large sum in the form of assets, stocks, or cash.
Planned giving was codified in order to create a powerful incentive for donors to support important causes. While organizations don’t rely on these methods to carry out their incredible work, they are highly impactful nonetheless.
What are the tax benefits of planned gifts?
In terms of tax benefits, planned giving is considered to be incredibly beneficial for donors of all backgrounds, allowing them to reap considerable estate and income tax benefits from their charitable giving.
Annuities, for example, allow for nearly tax-free cash gifts, hefty income tax deductions, and immediate capital gains tax avoidance for appreciated securities. Every time donors decide to contribute appreciated assets (like real estate or securities), they are eligible to receive a generous deduction, called a charitable deduction, for the full market value of the said asset (on top of no capital gains tax as the asset is transferred).
Donors who decide to establish a life income gift, instead, are able to receive a tax deduction for the full fair market value of the assets contributed, minus the value of the income interest. If they decide to fund their gift with appreciated property they also won’t pay any capital gains tax on the transfer.
Finally, when it comes to bequests or other designations viable at the time of the donor’s death, these donations are exempt from estate tax. This allows donors to leave even more generous amounts to their chosen cause.
Making your legacy matter with Food for Life
If you’ve been thinking of donating to our emergency food relief and hunger relief programs, we recommend all prospective donors to start considering planned giving as a viable and impactful option.
If you wish to make the most out of your generous donation and support our cause to the best of your abilities, you can have a powerful and long-lasting impact by leaving a charitable bequest to Food for Life.
With no restrictions on what you can give, generous estate tax benefits, and the opportunity to make a lasting impact on the world, charitable bequests or donations in memory of a passed loved one are a wonderful way to bring light back into the world during a time of mourning.
Your precious contribution will help us continue and expand our international food relief operations, bringing us one step closer to a future with no food insecurity, anywhere.
If you’re unsure of the details or unsure of what the best donation solution for your needs might be, you can get in touch with our team with any questions you might have. We are more than happy to guide you through the planned giving process and help you create a world-changing legacy, one step at the time!